South Africa has just witnessed two major economic events which spoke volumes about the prospects for global and local capitalism: an austerity-oriented budgetleaving the economy far more vulnerable to renewed world financial chaos; and a sham investment conference featuring capitalists with just as strong a record of super-exploitation and deceit as those who went to Mohammed bin Salman’s in Riyadh the week before.

The African National Congress (ANC) government’s new Finance Minister, Tito Mboweni, has long been celebrated in the financial markets for his monetary and fiscal neoliberalism. On October 9 he replaced Nhlanhla Nene because Nene had lied about numerous meetings with the notorious Gupta brothers. Thanks to their patronage of former President Jacob Zuma (who served 2009-18), the three Indian immigrants had established a kickback network worth billions of dollars over the prior decade, implicating major multinational corporations like KPMG.

Ironically, Nene had in 2015 resisted authorising debt for a $100 billion Russian nuclear energy deal the Guptas favored, as they owned the largest uranium mining house. As a result, in December 2015 Nene was fired as Finance Minister (his first stint), at the apparent request of the Guptas who initially brought in a lackey before the markets exploded in rage. Seven months ago, Nene was back, replacing former Finance Minister Malusi Gigaba who was shifted to the Home Affairs Ministry due to what traditional corporations understood as the latter’s much closer ties to Gupta-related corruption.

To the chagrin of neoliberals and liberals alike, Nene exemplified a problem we can term the ‘Ramazupta’ era of continuity, not genuine change. “Like an albatross around the neck of President Cyril Ramaphosa,” writes journalist Ferial Haffajee, Zuma’s “long shadow stalks Ramaphosa’s new dawn. The price of state capture was writ large in the policy statement, from the slashing of growth to 0.7% – down from February’s estimate of 1.5% – to the widening of the deficit, lower tax collections and a projection of skyrocketing administered prices. Electricity prices, for example, will go up by almost double the estimated inflation rate over the medium term.”

The all-powerful credit ratings agencies were unhappy about Mboweni’s deficit/GDP rate rising above 4%. This alone caused a 3% crash in the value of the Rand currency against the US$ within 12 hours of the budget speech. Another junk rating by Moody’s may well follow next month.

This wasn’t supposed to happen, given Mboweni’s excellent historical reputation amongst global investors, e.g. winningEuromoney’s “Central Banker of the Year” in 2001 for taming inflation with what were (and remain) some of the world’s highest interest rates. (Of governments issuing 10-year bonds, only Turkey, Pakistan and Argentina today pay more than SA’s 9.4%.)

But things have changed since South Africa’s early 2000s economic upturn. From 2002-08 there was a mild boom briefly reaching 5% GDP growth, resulting from looser consumer credit and the commodity super cycle. Unable to grasp the new economic playing field, Mboweni expressed a lackadaisical attitude: “Rising interest rates in the United States of America and a stronger dollar reflect a strong U.S. economy. In the medium term, strong U.S. growth will support export growth.”

Trumpist (and pre-Trump) deglobalisation

First, Mboweni has mistaken what first-hand observersterm a “sugar high” in U.S. growth rates and stock market values, recently fattened by Donald Trump’s massive corporate tax cuts (from 32 to 21%). For example, artificially-premature purchase orders by U.S. firms were boosted in September because corporates anticipated trade-war tariff increases on $250 billion of Chinese goods in the weeks ahead.

(South Africa just received minor relieffrom these tariffs, on grounds of trivially-low levels of U.S. steel and aluminum imports mainly from ArcellorMittal’s local operations – but Trade & Industry Minister Rob Davies so far remains unsuccessful in negotiating a full country exemption from Trump’s trade tariffs.)

Can Mboweni really count on “export growth” in these circumstances? On top of an anticipated Trump rethink of the Africa Growth and Opportunity Act (which over the last decade boosted U.S. imports from South African metals and auto industries), globalisation trends are reversing, led by the BRICS countries whose 2017 trade/GDP ratios fell rapidlyfollowing record highs: Brazil dropped from its historic peak of 30% in 2004 to 25%, Russia from 68% in 2000 to 45%, India from 56% in 2012 to 40%, China from 68% in 2006 to 38% and SA from 72% in 2009 to 61% last year.

Moreover, Wall Street stocks crashedover the two weeks just before Mboweni’s speech, with the S&P 500’s record early-October high based on a 10% gain for 2018, simply erased as 13 out of 15 trading days were loss-makers.

But to his credit, Mboweni did at least passingly recognise the risks of what he termed “monetary policy normalisation” – i.e. the gradual winding down of the U.S. Federal Reserve’s 2008-17 low interest rate regime, following the West’s $27 trillion in bailouts (especially the “Quantitative Easing” printing press) required by banks and corporations during the financial meltdown a decade ago, followed by the Euro crisis.

Contagion from tighter monetary policy, he noted, included emerging markets: “Turkey and Argentina have experienced sharp currency depreciation, rising credit spreads and large capital outflows.” In this context of economic chaos, could South Africa be next on the global financiers’ $#!thole list, given the country’s fast-rising $183 billion foreign debt (7.3 times higher than Nelson Mandela inherited in 1994) and much looser exchange control policies?

And if so, isn’t greater state protection from financial-crash ‘contagion’ needed? Unfortunately, the last 23 years were punctuated by more than three dozen liberalisations of capital controls, most on Mboweni’s watch as 1999-2009 Reserve Bank Governor. Perhaps most foolhardy was the permission given to the largest (non-Afrikaner) companies listed on the Johannesburg Stock Exchange (JSE) to relist in London: Anglo American and De Beers mining houses, Old Mutual Insurance, SAB beer and several others.

Mboweni did, however, hint at further parastatal corporatisation and more ‘user fees.’ For example, he endorsed the state’s hated, ineffectual Johannesburg-Pretoria highway e-tolling dogma, a high-tech system mainly beneficial to an Austrian license-plate surveillance firm, and most harmful to moderate-income black commuters driving from distant apartheid-era townships into the cities. Mboweni also promoted further Public-Private Partnerships to accompany a new $27 billion infrastructure fund.

On the other hand, Mboweni’s gifts to poor and working-class people last week are surely appreciated. These include making flour and sanitary pads free from the 15% Value Added Tax (along with 19 existing VAT exemptions on basic foodstuffs), although Mboweni dashed hopes of adding nappies and poultry to the exemptions because they would cost over $340 million in annual state revenues.

Broadly speaking, austerity is being felt more explicitly, and the ANC’s allies in the Congress of South African Trade Union were scathing about Mboweni’s “marginal programmes and projects. The statement was a reminder that we still lack a developmental vision, do not have a comprehensive development strategy and totally lack the necessary coordination of activities of various economic agents.”

Of the $3.4 billion in reprioritised state spending supposedly at the heart of an economic stimulus announced last month, the details remain vague. For example, only $1.1 billion is allocated to partially restore what even Business Day journalists termed‘savage’ cuts of $2.9 billion to basic infrastructure budgets (both municipal and rail transport) in Gigaba’s final budget, eight months ago. Yet the townships and especially the commuter train stations are aflame with anger over inadequate state services.

Perhaps most disappointing from Mboweni in this era of corruption revelations linking multinational corporations to the Zupta empire, he barely mentioned the biggest chunk of wasted money in the budget: procurement. Just two years ago, Treasury’s main regulatory official, Kenneth Brown, observedthat of $42 billion in 2016 state procurements, $15 billion was fraudulent expenditure.

As former Finance Minister Pravin Gordhan himself admittedlast year, regarding the 2009-17 era, Treasury had long abetted Zuma’s systematic “rent-seeking. It means every time I [i.e., Zuma] want to do something, I say it is part of transformation. But in the meantime, it means giving contracts to my pals in closets.”

Those contracts persist, even if a few high-profile abusers eventually are busted thanks to Gupta email leaks and (still painfully-slow) investigations. One of the best examples is the ANC’s in-house investment arm, which profited enormously from a $5.6 billion Hitachi contract to build boilers for two coal-fired power plants, a relationship well known when Treasury successfully sought the World Bank’s largest-ever loan in 2010. Hitachi reached an out-of-court settlement with the U.S. Securities and Exchange Commission – the second-largest ever – after being charged under the Foreign Corrupt Practices Act. Under Zuma, South African authorities never prosecuted Hitachi or the ANC, nor is such action likely under Ramaphosa.

Investments? Or corrupt white elephants

Those two 4,800 MW coal-fired power plants (Medupi and Kusile) are the largest under construction on earth, with estimated annual future CO2 emissions of 25 million tons each, not to mention voracious water consumption to wash coal and cool the boilers. They are finally nearing conclusion, nearly a decade behind schedule and around four times more expensive (at $14 billion each) than originally budgeted. The $24 billion loan guarantee that taxpayers give Eskom for these boondoggles is for Treasury, a massive ‘contingent liability.’

That remains the Presidency’s first-priority infrastructure mega-project (Ramaphosa was a former coal company owner). It is plagued by locomotive overcharging, once a $5 billion loan from the China Development Bank was secured by the Transnet parastatal, with $400 million in proceeds directed to Gupta allies from the main contractor, China South Rail.

The second priority mega-project requires another $17 billion for port-petrochemical complex expansion in Durban, with the fantasy aim of raising annual Durban container throughput capacity by a factor of more than six in the next 21 years, to twenty million. Doubling of oil piping from Durban is already underway thanks to a $1.5 billion pipeline, originally meant to cost $420 million. Expansion of container capacity was achieved through Shanghai Zhenhua Heavy Industries cranes purchased with further Gupta bribery.

Two other new fossil mega-projects are in process: a $10 billion coal-fired power plant (4,600 MW) and metallurgical complex near the Zimbabwe border announced by Ramaphosa during a trip to China last month; and fracking rigs and pipelines (estimated at $7 billion) in the ecologically-sensitive Karoo desert and Drakensburg mountains.

These massive spends anticipated by state, parastatals and fossil fuel companies put paid to South Africa’s United Nations climate change commitments of reducing emissions. A recent Department of Energy plan that does not yet include the new Chinese coal-fired power plant but will increase absolute output of fossil energy from the current 30,000 MW to 46,000 MW by 2030, thanks to the new coal plants and fracking gas. Further oil and gas exploration now underway offshore Durban by ExxonMobil and three other global oil companies are likely to result in even worse emissions in coming decades.

Meanwhile, Mboweni announced yet another delay in Treasury’s carbon tax. First mooted in 2012, it will in any case will be one of the world’s lowest CO2 emissions penalties(at just $3.20/ton, about 3% as high as world-leader Sweden’s), as a result of powerful fossil capital’s ability to fight progress.

The best news is that, unlike Zuma-era budgets, there is no provision for nuclear energy. Had Zuma’s ex-wife won the ANC election for party president instead of Ramaphosa late last year, that gambit may well have cost future taxpayers $100 billion. The irony is that Nene was compelled to resign due to Gupta-related dishonesty, but the abiding memory we have from his late-2015 firing, is that it was due to resisting Rosatom’s charms and Zuma’s orders.

In contrast, when Mboweni was made a director of the BRICS Bank in 2015, he toldBloomberg that financing nuclear energy “falls squarely within the mandate of the Bank.” So the green-red watchdogging of Treasury will have to ratchet up in preparation for next February’s new budget, when repeated labour and social movement expressions of disappointment will sound hollow if not matched by mass action.

Financial chaos hits the world and Johannesburg

In this difficult context, Ramaphosa invited corporate leaders to a summit, in order to unveil their five-year investment plans. In South Africa’s real sector (i.e., not financial speculation), genuine expansions of plant and equipment have been scarce since the early 1980s.

Gross Fixed Capital Investment as share of GDP, 1970-2017: world & South Africa

Source: World Bank.

The explanation is the gold price crash from $850 to $250/ounce, which was caused by an unprecedented rise in U.S. interest rates in 1979-80. Within five years, anti-apartheid sanctions plus mass protest plus the commodity price doldrums plus South Africa’s foreign debt crisis together caused a 1985 default and imposition of exchange controls, scared off foreign investors.

Aside from the commodity boom from 2002-08 and mainly-parasitical investments in real estate and financial institutions, there was never much gross fixed capital investment by either public, parastatal or private sectors. This is explained by the fairly close correlation between business confidence and private fixed investment.

Private Sector Investment and Business Confidence

Source: South Africa Reserve Bank.

Although a bounce occurred after Ramaphosa’s ANC presidential victory and soft coup against Zuma in February, Bloomberg News reported in August that “the slide from Ramaphoria to Ramaphobia is complete.” The confidence index had soared from 28 in mid-2017 to 45 by early 2018, but then by mid-year was back to 38.

In addition to cajoling local investors to have more confidence, Ramaphosa is also searching for $100 billion in new foreign direct investment from abroad (after a 41% decline in 2017). During presidential visits in recent months, China pledged $15 billion, Saudi Arabia $10 billion and the United Arab Emirates $10 billion. Nothing is known about these deals aside from shallow presidential back-slapping statements.

Then on October 26-27, Ramaphosa claimed he had raised another $20 billion at the investment conference, of which the largest single commitment came from Anglo American Corporation ($4.9 billion). The firm is notorious for its apartheid-era gold mining – replete with forced displacement and slave-like migrant labour conditions – followed by South Africa’s democratisation and then a rapid departure of its financial headquarters to London, alongside its fraternal De Beers diamond monopoly.

That was followed by the German-dominated auto industry ($3.4 billion), yet VW’s cheating on emissions declarations is one of the main reasons South Africa’s platinum industry is suffering an unprecedented decline. Other big pledgers of at least $1 billion include Vodacom cellphones, the BRICS New Development Bank (in credits not strictly speaking investments) and the brutal Indian mining firm Vedanta, whose chief executive Anil Agarwal is also now Anglo American’s largest owner.

(However, a Constitutional Court judgment the day before the investment conference may adversely affect future insensitive mining investments by Anglo, Vedanta and others: a poor rural community near Pretoria successfully resisted platinum extraction on their farm, confirming their “Right to say No!” to mining. The World Social Forum’s ‘Thematic Social Forum on Mining and Extractivism’ will amplify this sentiment at a major Johannesburg gathering next month.)

Setting aside the media hype regarding the promised projects over the next several years, how substantive is the pledged $20 billion? The South African economy has a $350 billion annual output of goods and services. It requires more than $80 billion in annual fixed investments to reach the 23% rates of investment to GDP experienced in what is currently a fairly subdued world economy. (The current rate is just over 18% investment/GDP, a condition often termed ‘capital strike.’)

Even in a country whose firms are regularly listed (by the International Monetary Fund) as enjoying amongst the five highest profit rates within the advanced capitalist and emerging markets, fixed investments are simply not as lucrative as financial speculation. South Africa has the notoriety of having the world’s highest-ever national ‘Buffett Index’ rating of stock market valuation to GDP.

But consistent with conditions now ever more common in the world economic $#!thole, the JSE has been crashing alongside stock markets in other middle-income countries. According to Schaik Louw, a leading investment analyst, the chaos is due to the woes of the single largest stock in South Africa, which was one of apartheid’s leading propaganda arms: Naspers (National Press). It owns 31% of Tencent, Asia’s largest firm, thanks to a lucky bet: a $25 million investment now worth more than $150 billion.

But in recent months, “Chinese internet companies were terrorised by strict regulations and a trade war with the US,” Louw explains, as Tencent was prohibited from selling Japanese games. The result was a “very wild rollercoaster ride.” (Another major Chinese tech firm suffering similar sell-offs is Alibaba, a Chinese version of Amazon. Its CEO Jack Ma was the keynote speaker at Ramaphosa’s conference.)

Prior to Naspers’ rise and Anglo’s departure twenty years ago, the other South African firm dominating the JSE was South African Breweries. Though now the third-largest listed on South Africa’s stock market, it later ran to London, bought Miller beer and was then swallowed by Anheuser Busch in 2016. Last week, that firm’s share value crashed $17.5 billion within a few hours after a dividend cut, signalling that in this shitty world economy there is no respite, not even in beer.

Patrick Bond (pbond@mail.ngo.za) is professor of political economy at the University of the Witwatersrand School of Governance in Johannesburg. He is co-editor (with Ana Garcia) of BRICS: An Anti-Capitalist Critique, published by Pluto (London), Haymarket (Chicago), Jacana (Joburg) and Aakar (Delhi).